Letter on Wellmark Reserves

JACK HATCH

STATE SENATOR
Thirty-third District
Statehouse: (515) 281-3371

ASSISTANT MAJORITY LEADER

Appropriations
Economic Growth
Human Resources

COMMITTEES

DISTRICT OFFICE
1312 Locust St, Suite 300
Des Moines, Iowa 50309

State of Iowa
Eighty-third General Assembly
STATEHOUSE
Des Moines, Iowa 503 19

Labor and Business Relations

State Government
Health and Human Services
Appropriations Subcommittee,
Chair

0:(515) 243-4675
jack.hatch@legis.state.ia.us

www.jackhatch.org
jack@hatchdevelopment.com

July 8,2013
Mr. Nick Gerhart

Commissioner, Iowa Insurance Division

330 Maple Street

Des Moines, IA 503 19-0065

In re: Status of Wellmark surplus and reserves — 2013
Dear Commissioner Gerhart:

I write on behalf of Iowa insurance consumers with concerns about Iowa's largest insurance
provider, Wellmark Blue Cross and Blue Shield of Iowa. The company recently announced it
will not'offer Iowans insurance coverage as part of the health insurance exchange Iowa will
begin operating in partnership with the federal government in 2014.

The concern I raise is related to reserves and surplus being held by the company, which total
approximately $1.3 billion. My understanding is that a report was completed by the Iowa
Insurance Division in 201 1 finding the level of reserves and surplus was appropriate. This report
also concluded the new federal health care law, the Affordable Care Act, provided much of the
justification for the reserves and surplus. Specifically, the issue of participation in the health
insurance exchange was listed as one of the factors driving the company's need to hold the $1.3
billion.

In relevant part the report provided:

"While it is not currently possible to determine an amount of increased surplus
relating to the PPACA reforms, it is clear that more surplus would be required,
not less." Factors identified as driving the need for more surplus associated with
the Affordable Care Act included: minimum loss ratio standards with related
rebate requirements, health insurance exchanges, taxation changes to support
health care reform and the potential business impact of state-based cooperatives."

The company's decision to decline participation in Iowa's partnership exchange removes a major
component of its justification for holding reserves and surplus. Since the state requires a reserve
account of approximately $350 million, it would appear to me that Wellmark's reserve is nearly
400% higher than required..

I am requesting a new report be commissioned, completed, submitted to legislators and made
available to lowans at your earliest possible convenience. The funds in question are the
property of the policy holders of Wellmark. They are Iowa taxpayers who have paid into the
$1.3 billion surplus. They deserve to know the reason that money is being kept from them. It is
my position that a sufficient basis exists at this time to return that portion of the reserve that is no
longer required to the lowans who have contributed to it.

Health insurance premiums are high enough without families having to add money to
Wellmark's books. The company would appear to be financially healthy and prepared to meet
the needs of its policyholders. It is time some of its reserves and surplus funds be returned to
lowans in the form of premium rebates.

In addition, consumers are also losing any leverage their premiums generate by not having the
insurers investment income included in their final premium rate calculation. Is it true that you
are not allowed, by statute, to consider an insurer's investment income toward their future
premium rate increases? Would it be advisable for you as commissioner to have authority from
the legislature to include investments being held by a company when analyzing the need for a
rate increase?

I strongly believe that it makes sense to count all of a company's holdings when taking into
account the need for additional consumer contribution to their insurance? It would appear Iowa
law in this area could use an update. I would be interested in your analysis and input on this
matter.

Thank you for your consideration and I look forward to receiving the information requested
herein.

Very truly yours,

Cc: Senator Matt McCoy